Question

On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:
  

Accounts	Debit			Credit
Cash	$	26,800
Accounts Receivable		49,600
Allowance for Uncollectible Accounts				$	5,900
Inventory		21,700
Land		63,000
Equipment		23,500
Accumulated Depreciation					3,200
Accounts Payable					30,200
Notes Payable (6%, due April 1, 2019)					67,000
Common Stock					52,000
Retained Earnings					26,300
Totals	$	184,600		$	184,600

  
During January 2018, the following transactions occur:

January 2. Sold gift cards totaling $11,400. The cards are redeemable for merchandise within one year of the purchase date.
January 6. Purchase additional inventory on account, $164,000.
January 15. Firework sales for the first half of the month total $152,000. All of these sales are on account. The cost of the units sold is $82,300.
January 23. Receive $127,100 from customers on accounts receivable.
January 25. Pay $107,000 to inventory suppliers on accounts payable.
January 28. Write off accounts receivable as uncollectible, $6,500.
January 30. Firework sales for the second half of the month total $160,000. Sales include $11,000 for cash and $149,000 on account. The cost of the units sold is $88,000.
January 31. Pay cash for monthly salaries, $53,700.

1.

1. Record each of the transactions listed above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

References

eBook & Resources

General JournalLearning Objective: 08-01 Distinguish between current and long-term liabilities.Learning Objective: 08-04 Explain the accounting for other current liabilities.

Difficulty: 2 MediumLearning Objective: 08-02 Account for notes payable and interest expense.Learning Objective: 08-06 Assess liquidity using current liability ratios.

Check my workPrevious attempt

2.

value:

1. Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $4,900 and a two-year service life.
2. At the end of January, $28,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 5% will not be collected.
3. Accrued interest expense on notes payable for January.
4. Accrued income taxes at the end of January are $14,700.
5. By the end of January, $4,700 of the gift cards sold on January 2 have been redeemed.
  
2. Record the adjusting entries on January 31 for the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

References

eBook & Resources

General JournalLearning Objective: 08-01 Distinguish between current and long-term liabilities.Learning Objective: 08-04 Explain the accounting for other current liabilities.

Difficulty: 2 MediumLearning Objective: 08-02 Account for notes payable and interest expense.Learning Objective: 08-06 Assess liquidity using current liability ratios.

3.

3. Prepare an adjusted trial balance as of January 31, 2018.
  

References

eBook & Resources

WorksheetLearning Objective: 08-01 Distinguish between current and long-term liabilities.Learning Objective: 08-04 Explain the accounting for other current liabilities.

Difficulty: 2 MediumLearning Objective: 08-02 Account for notes payable and interest expense.Learning Objective: 08-06 Assess liquidity using current liability ratios.

4. Prepare a multiple-step income statement for the period ended January 31, 2018.
  

References

eBook & Resources

WorksheetLearning Objective: 08-01 Distinguish between current and long-term liabilities.Learning Objective: 08-04 Explain the accounting for other current liabilities.

Difficulty: 2 MediumLearning Objective: 08-02 Account for notes payable and interest expense.Learning Objective: 08-06 Assess liquidity using current liability ratios.

5.

5. Prepare a classified balance sheet as of January 31, 2018. (Enter the Asset Accounts in order of liquidity. Amounts to be deducted should be indicated with a minus sign.)
  

References

eBook & Resources

WorksheetLearning Objective: 08-01 Distinguish between current and long-term liabilities.Learning Objective: 08-04 Explain the accounting for other current liabilities.

Difficulty: 2 MediumLearning Objective: 08-02 Account for notes payable and interest expense.Learning Objective: 08-06 Assess liquidity using current liability ratios.

6.

value:
15.00 points

6. Record closing entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
  

References

eBook & Resources

General JournalLearning Objective: 08-01 Distinguish between current and long-term liabilities.Learning Objective: 08-04 Explain the accounting for other current liabilities.

Difficulty: 2 MediumLearning Objective: 08-02 Account for notes payable and interest expense.Learning Objective: 08-06 Assess liquidity using current liability ratios.

7.

7. Analyze the following for ACME Fireworks
  

Requirement 1:

a-1. Calculate the current ratio at the end of January.

a-2. If the average current ratio for the industry is 1.80, is ACME Fireworks more or less liquid than the industry average?

	more liquid
	less liquid

Requirement 2:  

b-1. Calculate the acid-test ratio at the end of January.
  

b-2. If the average acid-test ratio for the industry is 1.50, is ACME Fireworks more or less likely to have difficulty paying its currently maturing debts (compared to the industry average)?

	more likely
	less likely

Requirement 3:

c-1. Assume the notes payable were due on April 1, 2018, rather than April 1, 2019. Calculate the revised current ratio at the end of January.
  

c-2. Indicate whether the revised ratio would increase, decrease, or remain unchanged.

	Decrease the current ratio
	Increase the current ratio
	Remain unchanged

Answer 1